Buy Lines: Congress takes another dangerous step on offshoring

Stan Soloway

The tsunami known as offshoring, or worldwide sourcing, continues to roll. I suggested in this space two months ago that Congress tread cautiously before acting on this complex issue. But March 4, by a vote of 70-26, the Senate passed an amendment authored by Sen. Chris Dodd (D-Conn.) that prohibits performance overseas of work covered under a federal contract for goods or services, and of work covered under a state contract or grant that uses federal funds.

The speed of action on Dodd's proposal -- just three weeks from introduction to passage -- and the overwhelming vote for the modified version are sure signs of the deep political resonance the issue strikes. As demonstrated by the floor debate on the amendment, the exodus of manufacturing and services economy jobs is viewed as a single phenomenon, even though their dynamics, impacts and solutions are substantially different.

Fortunately, the Senate also agreed to several perfecting amendments that partially ameliorate the amendment's impact, including an exemption in situations where its provisions conflict with the World Trade Organization's General

Procurement Agreement, NAFTA or other international trade agreements. Also there is an exemption for select agencies for national-security-related procurements, although the real meaning of this language is unclear.

The provisions do not go into effect until after the secretary of Commerce makes a report to Congress, within 90 days after enactment, that assesses the law's impact on domestic employment and the economy.

Nonetheless, the legislation remains problematic, and its implications are already becoming clear.

If enacted in its present form, this sweeping statute could force many internationally respected companies out of the U.S. government market, simply because they can't meet the requirements of the law. This impact could be felt in procurements of everything from cell phones and office supplies to computers, automobiles and even major weapons systems.

Much of what the government acquires is routinely, and properly, procured from standard commercial sources. It is widely recognized that the old system of buying through government-unique sources was exorbitantly costly and tended to distance the government from the rapid pace of technology advancement and improvement.

If the government or its contractors can no longer procure commercial items and services that are inextricably linked to the global marketplace, costs could rise steeply at a time when agencies face an almost unprecedented budget crunch. The government's access to innovative solutions also could be inhibited. The Senate debate on the amendment ignored these important dichotomies.

The biggest impact is not likely to be felt in direct government work, such as those contractor employees directly supporting a government contract. For a variety of reasons, many longtime federal contractors already segment their work forces and provide their direct support to the federal government with U.S. citizens. Rather, the impact likely will be far greater on the indirect, largely commercial sources of support for government contracts, over which the government and prime contractors often have little control.

The palpable, political groundswell driving this issue puts enormous pressure on Congress. Demagoguery is not the answer to this pressure, but neither is denial. Tax credits for research and development, more and better work force retraining, extending Trade Assistance Act coverage to services economy workers, and even incentives for domestic contract performance are better, more balanced solutions.

But the first order of business is to create an environment that is receptive to such solutions, even amid all of the rhetoric and political positioning. That might be the biggest challenge of all.

Stan Soloway is president of the Professional Services Council; he previously served as deputy undersecretary of defense. His e-mail is soloway@pscouncil.org.

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